19 Oct 2022

Where Is Compound Interest Used?

Compound Interest

A great mortgage broker should be aware of the various places and accounts compound interest is used so they can successfully assist their clients through any questions or concerns. Compound interest is used in countless different types of accounts, including the following examples:

  • Money market accounts
  • Real estate investment trusts
  • Certificates of deposit (CDs)
  • Dividend stocks
  • Bonds and bond funds
  • Various types of savings accounts

Compound interest is interest accrued from the principal amount originally deposited in an account. Essentially, compound interest is a type of interest earned from interest. 

Various types of savings accounts are eligible for compound interest, including high-yield savings accounts. High-yield savings accounts generally do not require a minimum deposit and have the potential to pay interest rates that are higher than traditional savings accounts.

Certificates of deposit (CDs) are a type of low-risk investment option that allows a client to easily begin increasing their money. Certificates of deposit pay the compound interest a client has accumulated regularly, pay at a higher interest rate than traditional savings accounts, require a minimum deposit, and are generally offered by bank establishments. 

Money market accounts are interest-bearing accounts that are known to have higher interest rates than traditional savings accounts. Interestingly, money market accounts allow a client to have access to their funds through check writing and debit cards. 

There are a wide variety of benefits a client can receive from compound interest, including the following examples:

  • A client can make money on an original deposit and interest the account has accumulated
  • The ability to quickly begin increasing their funds
  • The ability to reinvest returns made on investments or properties through the interest the account has accumulated
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